GOVERNMENT DEBT UNDER QUESTION

In view of the soaring Government’s debt, many parties warned the Government to be cautious the keep the nation from sinking the way it happened to Greece who failed to keep their head above water. The alarm was clear since Government’s debt nearly touched the psychological level of Rp 2,000 trillion or around 27% of total GDP which was Rp 7,000 trillion.

In fact the position of the Government’s debt which was 27% against GDP was still within safe level, because the permitted limit was 60%. Compare this against Greece’s debt which had reached 160% against GDP. The point was if a country had debt ratio of above 60% it might be regarded as a failure country.

It was noteworthy that the Government remained optimistic although debt had piled up to Rp 1,950.08 trillion was still optimistic to be able to pay off debt because the debt-to-GDP ratio was still small. Meaning, in view of the ratio today, the Government’s capacity to pay debt was still reliable.

Data of the Ministry of Finance had it that the Government’s debt-to-GDP ratio today was 26.9%, which was notably low. Besides, the Government’s financial condition was still healthy because deficit of balance of payment was still controllable at below 3%. The Government expected the public not just to look at the nominal figure of debt but also the Government’s capacity to pay debt, which was still strong.

To illustrate, a company which had asset and high profit, would rather use debt instead of company’s asset of small profit. So far the Government felt that debt management was extremely healthy, where people’s per capita dent was also low.

Total Government’s debt which by July 2012 reached Rp 1,950.08 trillion, when compared to end of 2011, the amount rose by Rp 146.59 trillion. Of that amount, Rp 625 trillion were borrowing from some countries and multilateral financial institutions.

Although the Government was optimistic about settling debt including interest to downpress debt was more important. During the New Order era was more important. During the New Order era (the Suharto era), each time the Government obtained new debt it was always celebrated as an achievement. Indonesia was rated as having successfully gained confidence from creditor country because of being able to return the debt including interest on time. Ironically there had been a systematic misleading campaign which taught that debt was not a burden but an achievement. Data had it that the new Order willed debt amounting to Rp 1,300 trillion or Rp 6.5 million per citizen.

The fact was that view of the Government of the reformation era never really changed. No signs of serious effort was visible to minimize debt or just treat debt as complementary component for financing development. The position of Indonesia’s debt as per July 2012 which reached Rp 1,950.08 trillion was taken lightly and there was no effort to reduce dependency on debt, and the amount even tend to increase.

Nevertheless, for long various circles had been worrying about the trend of swelling Government’s debt without any effort to reduce or downpress the amount. Some observers even remarked that if borrowing were let to happen without control, it was not impossible that Indonesia would end up like Greece.

Debt had sunk this land of the Gods in long and painful crisis wher in the end it was the people who had to shoulder the burden as economic condition turned adverse. Austerity plan at national scale had to be done with all the consequences which even fellow Europeans had the share the pain caused by Greece’s debts. A bail out plan worth 100 billion Euro was prepared to help Greece brunch back on her feet. Indeed a dramatic situation.

As with debt of the Government of RI, apparently the people were not enjoying any benefit from the debt. The quality of management of the fund was low and hence not felt. There were sufficiently sound evident that proved the statement. Firstly, price of food was not stable which eroded people’s purchasing power. Secondly, the condition of infra-structure was still bad and way below expectation. Thirdly, poverty figure was hard to bring down significantly since the cream of wealth from development process was not evenly distributed.

Only trouble was, grievances was expressed that most of the Government’s borrowed money were used for portofolio investment more than allocated for the real sector which were beneficial for the people. From the above picture, lessons might be learned that the Government should better review and manage their overseas debt. It was suspected that the credit was not spent on the basis of a sound and definite plan but rather they were used to serve the interest of creditors and the busiesspeople behind them.

Definitely, reformation and restructurization of of credit was indispensable. It was better to be aware of the trap before it was too late. The Government must be able to use the money efficiently so it could be benefited by the people. Furthermore, as time goes by dependency on borrowed money must be lessened by increasing income from own resources such as tax.

In parallel with that the potential of financial leakings must be walled out by clean, effective and responsible good governance. Funding management must be transparent and accountable all for the sake of people’s prosperity. Fund allocation must be focused on priority afield which was development oriented with highlight on basic infra structure instead of serving short term political interest.

Finally the habit of borrowing itself must be totally abandoned as long as the Government were able to tap non-credit resources. Even if borrowing were necessary, it would be advisable if the Government borrowed money from their own people by way of selling promissory notes to the Indonesian people.

Release of the Indonesia Retail Bond (ORI) which had reached 7^th round was a success story and should be continued because the buyers were purely Indonesian individuals, thereby the Indonesian people had given their contribution to serve the nation.  

Business News - August 31, 2012